I have posted this in another thread... it's also relevant for this topic. Copy pasting...
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A major mistake people make when it comes to property investment is that they assume that prices will increase and they will definitely earn profit. They are not mindful of the time value of money.
If you buy a plot at 40 lacs and after 10 years you get 60 lacs, that's not really a 'profit' as the value of 40 lacs 10 years ago clearly must be higher than the 60 lacs 10 years later due to inflation.
Making profit in property investments depends only on correct assessment of demand and supply situation. This will enable you to see what is the right time to buy.
The above depends on two things.
1) Generally, property prices will increase, and hence you will make profits, if the overall economy improves, with more jobs, increase in aggregate demand, increase in inflation, increase in employment, and ultimately a high GDP rate. That's why people who invested in 2003 made gigantic profits each year out of real estate investments by the end of 2007. However people who bought property in 2007 (which was the peak time), their property prices are still at that same level even after 4 years. So in real terms they have lost a lot, due to high inflation (stagflation) in those 4 years.
The common myth that in long term real estate always is profitable is also not true. Prices may not increase much for next 4 years also (keeping in pace with inflation rate). Also, don't forget that people who bought property in 1990 didn't gain much even for 10 years as even in 2000, the prices were still at more or less the same level. This is because the economy sucked during that (lost) decade, and as a result real estate market remained down.
2) There are also cases where prices increase even when the economy doesn't improve. That is when there is 'GENUINE" demand problem and the supply is not enough. This is the case in Karachi. Even though the law and order situation is pathetic, the economy is terrible, still prices of decent living areas (like defence, clifton, PECHS, Gulshan etc) are improving because there is just no supply of good housing schemes (unlike in Islamabad and Lahore which is loaded with new housing schemes). Due to that reason alone, I believe prices in Karachi would shoot up further as the population is increasing by every day and there will be the classic case of too many people (and their money) chasing few goods. It is also the case with the autombile industry by the way.
Investment in Islamabad is thus, in my opinion, not very highly recommended because a) the economy is not likely to improve in near future, and b) the supply of new housing schemes is huge in Islamabad, with Bahria town (1-6) already built, phase 7, 8, 9 being planned, DHA, countless CDA new sectors, and many other small scale schemes (Gulrez, etc). There isn't possibly that much genuine demand to live in all those societies even in 10 years time.
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